Senate gives early approval to $10 M tax package

Debate to continue on amendments affecting income tax and other items

Apr. 30, 2013

Written by

Free Press Staff Writer

MONTPELIER — Senators gave a $10 million tax package preliminary approval with only a couple of barely audible ‘no’ votes Tuesday, but then a parade of senators appeared before the Finance Committee to present amendments that would affect or nullify nearly every revenue source in the bill.

The full Senate will debate the array of amendments Wednesday before voting on passage of the bill, a vote that will set the stage for three-way negotiations to find a compromise agreeable to the Senate, House and Gov. Peter Shumlin by the Legislature’s target departure date of May 11.

Sen. Ann Cummings, D-Washington, who shepherded to passage many a tax bill during her years at the chairwoman of the Finance Committee, challenged the biggest revenue source in this year’s bill – the proposed changes to the income tax projected to raise $7.4 million.

Cummings, who works in real estate, said she worried about the impact on first-time homebuyers of a proposed $12,000 cap in the mortgage interest deduction should interest rates rise. She suggested allowing the cap to change based on the prime interest rate.

Finance Committee members acknowledged that a dramatic change in interest rates would impact more moderate-income homeowners, but didn’t think Cummings had found the remedy.

“This one would disintegrate the home mortgage exception in the bill,” Chairman Tim Ashe, D/P-Chittenden, said. The committee voted to recommend that the full Senate reject Cummings’ amendment.

What to tax and how much

Sen. Anthony Pollina, D/P-Washington, also offered a measure that would change the income tax. He wanted to increase tax rates on the top two income brackets and raise a lot more money — $21 million — from about 4,700 filers.

“These are people who can afford to pay more,” Pollina argued.

His amendment also called for elimination of the bill’s proposed sales tax on bottled water and a gross receipts tax on satellite programming.

The committee unanimously rejected Pollina’s package.

Sen. John Rodgers, D-Essex/Orleans also wanted to get rid of the new tax on satellite programming.

(Page 2 of 2)

The Finance Committee included this tax in the bill, members argued, as a matter of fairness.

“We are trying to bring parity in telecommunication,” Ashe had said during his presentation of the bill to senators, noting a current disparity between the taxation of satellite and cable programming.

Rodgers also asked for renewal of a special tax credit for wood products manufacturers, saying it was critical means of keeping 450 jobs at Ethan Allen Furniture in the Northeast Kingdom.

Committee members discussed other possible ways to help the company, noting that the tax credit has to be booked as costing $347,000, although the company has never received that big a benefit. The panel decided to put off a vote on its recommendation while supporters gathered additional information.

The committee rejected Rodgers’ third proposal which would have let the tax commissioner waive back taxes and penalties in instances when business owners had been confused about whether to collect sales tax on some items.

The committee will reconsider the concept for another bill.

Internet sales and higher education

The committee also postponed a decision on the extension of a moratorium on charging a sales tax on pre-written software sold via the Internet, also known as a cloud tax. Sen. Virginia Lyons, D-Chittenden, made the same case that the Shumlin administration had also pitched — that cloud services are evolving so quickly it is difficult to define what to tax.

The provision in the bill would limit availability of the tax credit to those with less than $150,000 in taxable income. Sen. Peter Galbraith, D-Windham, had explained to the full Senate that as it was structured now, it let taxpayers with higher incomes shelter — tax free — the gains they accrue on college savings.

Westman argued that limiting eligibility for the tax credit could jeopardize the program – which he once ran at the Vermont Student Assistance Corp.

Galbraith disputed the benefit of having a Vermont-based college-saving plan, when other plans could offer Vermont parents and grandparents lower fees and higher returns on investments. “They ought to be getting the best possible deal.”

Westman wasn’t on hand when the committee rejected his amendment, but he wasn’t surprised by the 4-2 vote. He noted, however, that the outcome could be different when the full Senate considers the question.